IPOs disappear with no trace in uncertainty
Due to the drop down of share price and investor confidence, initial public offerings (IPOs), with no companies going public on mainland last month, have disappeared off the radar.
There were only 30 domestic companies going public in the third quarter this year, down 60.5 percent year-on-year, and the total funds raised on the Shanghai and Shenzhen stock exchanges fell 86.5 percent year-on-year to $3.12 billion, based on Beijing-based investment research and consulting firm ChinaVenture.
Venture capital and private equity have also gone into a state of inactivity. The money they invested into promising Chinese companies in the third quarter of 2008 dropped steeply 94.1 percent from $521 million a year earlier.
Wu Feng, an analyst as TX Investment Consulting Co Ltd, said, “The secondary market has almost lost its financing functions due to the continuous slump of indexes, while the dire shortage in demand will further depress IPO pricing and the rate of return.”
According to ChinaVenture’s survey, compared with 7.39 times in the third quarter of last year, the IPO rate of return of VC/PE-backed companies also declined and dropped to 1.97 times.
“Faced with growing economic uncertainty, venture capitalists may take more cautious and conservative steps when investing in startup companies,” said Liu Zhiteng, an investment manager at Blue Ocean Capital (U2ipo), a Shanghai-based investment consulting firm.
James Huang, the CEO of BPOVIA in Nanjing holds the same opinion with Liu Zhiteng.
Based on the statistics compiled by Guangzhou Daily, the Issuance Examination Committee (IEC) under China’s securities watchdog has not received any applications for share issues from companies since Sept 16.
The 25 percent drop in October of China’s benchmark index and the Shanghai Composite Index was the largest monthly slide since February 1995. According to China Securities Journal’s report, the combined third-quarter net profit for China’s publicly traded companies dropped 19.89 percent to 227.1 billion yuan, from the previous quarter.
Additionally, the average premium rate of the first day closing price for 77 newly-issued stocks on China’s two bourses was 112.54 percent as of October this year, compared to 194.64 percent for 129 newly listed stocks in 2007, based on the Securities Times.
Wu said Chinese companies will still avoid raising money from the secondary market given worsening corporate profitability and negative investor sentiment.
The benchmark Shanghai Composite Index dropped 0.52 percent, with an end of 1719.77 on November 4.
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